2009 could possibly be the first year offering a relatively attractive
level of equity investment since 1995. This is because the equity risk
premium is clearly above its long-term average now, a position that it
had not achieved even at the previous market trough (e.g. 2003).
􀂃 The conditional tense above is not just precautionary. Whilst we
consider the commodity bubble as burst, and start to see some
value in Oil and other Materials, we are considerably more dubitative
about what we call generically Leveraged Demand, ranging from
Cars to Capital Goods, via Retail. For all these, we admit to total
ignorance as to where and when the cash return can bottom out.
Our only certainty: a lot lower than the historical trough, and a lot
lower than 2008. We see little value emerging yet in these sectors.
􀂃 There is also uncertainty around the “Growers”, those companies
and sectors which have enjoyed a sharp improvement in returns over
the past decade, but, unlike the previous lot, without the apparent
help of leverage. For instance Consumer Staples, whose cash return
has gone from 8 per cent in 1989 to 14 per cent in 2008 in Europe.
Can they really hang-on to this competitive advantage in the current
environment? They’d better, because there is not enough value for
them to let their margin slip and disappoint on a large scale.
􀂃 This leaves Health Care and some Technology as our safest sector
recommendations, but we believe that 2009 is more likely to be a
year for stock picking than for sector rotation. In this spirit, we have
come up with a list of 16 global names (and a ‘bench’ of a further 9)
which offer undervalued potential, in our view, for investors willing to
accumulate exposure to the equity market.
Europe Japan US
BASF Canon Coca-Cola
Nestle R Shin-Etsu Chemical Intel Corporation
Nokia A Sony Johnson & Johnson
Novartis Takeda Pharmaceutical Merck & Co
Royal Dutch Shell Microsoft
Vodafone Pfizer

Table of contents
Market Overview ............................................................................... 3
Company Analysis ........................................................................... 10
Europe..........................................................................................................12
Japan............................................................................................................78
US...............................................................................................................126